OECD Sustainable Manufacturing Metrics Toolkit and Sustainable Manufacturing 101 Module

Morgan BarrDepartment of CommerceJanuary 25, 2012

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What is the OECD?

• The OECD is an intergovernmental organization with 30 member countries

• “a setting where governments compare policy experiences, seek answers to common problems, identify good practice and coordinate domestic and international policies.”

• Made up of several “Directorates” and numerous committees organized by issue with government and business representation

• The OECD is one of the largest sources of international economic and social statistics and data

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OECD Sustainable Manufacturing Toolkit

• U.S. proposed study in 2006 in the Committee for Industry, Innovation and Entrepreneurship (CIIE)

• Responding to industry demand with the goal of creating a useful toolkit for companies to help them start measuring their environmental performance

• Work began in early 2008

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Goals• Limited in number and scope. It is very difficult to start

measuring your impact, and improvement is impossible without measurement. Needed to be SME-friendly

Simplified metrics

• OECD worked with companies and experts from many member states.

Internationally accepted

• Based on existing sets of metrics and the indicators that are most commonly used by companiesCommonly used

• Indicators, as a group, give a holistic picture of the facility or product’s environmental impacts over the life cycle

Picture of environmental sustainability

• Voluntary reporting initiatives (GRI, EMAS and ISO 14031) are flexible frameworks with a choice of indicators and methodologies, and the indicators are usually not normalized

Comparable

• More detailed and sophisticated indicators and methodologies (LCA, MFA, environmental accounting) require extra time and specialized expertise.

Can be used by non-experts

• Many metrics sets are used for external reporting, not improvement, and most don’t focus on the materials, processes and products

Internal decision making

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Phase 1 Results

• The report, Eco-Innovation in Industry: Enabling Green Growth, was published in January 2010

• It included chapters on:– Concept of sustainable manufacturing– Eco-innovation examples– Background on indicators for

sustainable manufacturing– Measuring eco-innovation– Strategies for promoting eco-

innovation

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Phase 2 Results

• Start-up Guide– Step by step guide on how to

measure– Why measurement is important– Benefits of sustainability– Deals with issues of data

availability, priorities, alternative sources of data

– Making decisions– Going beyond the toolkit

• Online portal– In-depth information on how to

calculate the indicators (forthcoming)

– Other advice and tools

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Measurement Process

• The quick-start guide describes a seven step process

1. Map impacts and set priorities

2. Choose indicators and understand data needs

3. Measure inputs used in production

4. Assess the operations of your facility

5. Evaluate your products

6. Understand your Results

7. Take action to improve your performance

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Indicators Overview

• 18 indicators• 54 data points• Facility level (can be

aggregated)• Inputs, processes, products• Many are normalized• Can be tracked over time

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Relationship With Other Metrics Sets

Product | process | facility | corporation | sector | country | global Measurement unit

Tech

nic

al D

eta

il

High

Medium

Low

LCA

GRI MFA

IPCCPRTRs

EMAS

EF

OECDToolkit

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Indicators Overview

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Inputs

• I1. Non-renewable Materials Intensity

• I2. Restricted Substances Intensity

• I3. Recycled/Reused Content of Material Inputs

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Operations

• O1. Water Intensity

• O2. Energy Intensity

• O3. Renewable Proportion of Energy Consumed

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Operations

• O4. Greenhouse Gas Intensity

• O5. Residuals Intensity–Mass Balance Approach

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Operations

• O5. Residuals Intensity–Total Waste Approach

Ra = weight of releases to air

Rsw = weight of releases to surface water

Rl = weight of releases to land

Rlf = weight of releases to landfills

Td = weight of transfers to disposal

Tt = weight of transfers for treatment

Tr = weight of transfers to recycling

Ter = weight of transfers for energy recovery

Ts = weight of transfers to sewage

GHGp = weight of additional GHGs produced from production process

GHGo = Weight of additional GHGs produced from overhead

Ce = Carbon content of direct energy use

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Operations

• O6. Intensity of Residual Releases to Air

• O7. Intensity of Residual Releases to Water

• O8. Percent of Land Occupied that is “Natural Cover”

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Products• P1. Recycled/Reused Content of

Products

• P2. Recyclability of Products

• P3. Renewable Materials Content of Products

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Products• P4. Non-Renewable Materials Intensity Over

Product Lifetime

• P5. Restricted Substances Content of Products

• P6. Energy Consumption Intensity

• P7. Greenhouse Gas Emissions Intensity

Sustainable Manufacturing 101 Module

• Goals:– Provide non-experts with an introduction to

sustainability topics and guidance on how to begin implementing more sustainable practices

– Gather information from disparate sources into one place

– Can be used by people with a variety of training needs (specific sustainability topics to financing and decision making)

– Connect users to more in depth sources of information

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If you haven’t yet, first start the slide show. Click the at the bottom of the screen

Look for these icons to learn about:

How to use this training

Click on the arrows and other indicated buttons to move through the lesson.

Click the house button to take you back to the beginning of the lesson

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Advanced concepts

Checklists with guidance to follow

Tools and resources to pursue for help

New or related terms

Examples from real companies

Terms to look for in the Sustainable Business Clearinghouse in order to find information and resources to help you.

Lessons

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Introduction to Sustainable

Manufacturing Concepts

The Business Case for

Sustainable Manufacturing

Getting Started and

Understanding Your Impact

Finding Opportunities for

Improvement

Deciding on, Financing, and Implementing

Projects

Foreign and Domestic

Regulations

What is Sustainability?A common definition of sustainable development is that of the UN Brundtland Commission:

“Sustainable development is development that meets the needs of the present without

compromising the ability of future generations to meet their own needs.”1

You will also hear about the Triple Bottom Line2

This concept suggests that, in addition to its economic performance, a company must also account for and focus on its environmental and social performance to be truly sustainable.

Another common way of saying this is “people, planet, profit”2 Sustainability is the intersection of these three concepts.

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1 Brundtland Commission of the United Nations2 John Elkington, Cannibals with Forks: the Triple Bottom Line of 21st Century business

Environmental

(Planet)

Economic(Profit)

Social(People)

Sustainability

How do you Implement Sustainable Manufacturing?

It can be overwhelming to think about all the work that would be required to make your company more sustainable.

However, there is a spectrum of efforts you can make towards sustainable manufacturing. Some involve more effort and investment than others.1

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Housekeepin

g

Improvements

in work

practices and

maintenance

Process

Optimizatio

nMaking

adjustments to

processes to

increase

efficiency

Raw Material

Substitution

Shifting to more

environmentally sound inputs

New Technologies

Enable lower resource consumption, waste generation, emissions

New Product DesignMinimize impacts throughout product lifecycle

1 “Government Strategies and Policies for Cleaner Production.” United Nations Environmental Programme and “Eco-Innovation in Industry: Enabling Green Growth” OECD

Generally easier

More DifficultClick on each of the boxes

to learn more

Economic Benefits: A Closer LookSustainability can have a positive effect on a number of business areas.

Click on each item to learn more.

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Regulatory Compliance

Costs

Resource and Production

Costs

Sales and Brand

Reputation

Employee Hiring and Retention

Financing and Capital

Resource and Production Costs

• Forty-four percent of CEOs from the Accenture survey reported that revenue growth or cost reduction was a major motivation for their sustainability efforts.1

• Sustainable manufacturing practices increase production efficiency, primarily through increased resource efficiency. Resource efficiency includes things like energy, water, and material efficiency. Increasing your resource efficiency will lower your material and input costs.2

• Sustainable manufacturing can also lower the cost of waste removal, as you produce less waste and byproducts, and reduce transportation costs through lower product weight and more efficient transportation.3

241 Accenture and the United Nations Global Compact “A New Era of Sustainability: UN Global Compact-Accenture CEO Study 2010.”2 UNEP Life Cycle Initiative “Life Cycle Management”3 “The Sustainability Advantage.” Bob Willard.

Some Ways Sustainable Practices can Lower

Production Expenses3

•Efficiency - Using fewer materials, energy, water and other inputs to produce each product.

•Waste – Reducing or reusing scrap or wasted energy. Recycling materials

•Substitution – Use cheaper and more sustainable materials and energy sources

What is Your Company’s Footprint?

When beginning to think about where you should focus your efforts, it’s tempting to start with the impacts within your operations or just within

your facility. But the effect of your product or service doesn’t stop at the factory gate.

You need to think about the entire Life Cycle of your product, taking a cradle to grave approach from the inputs used to make your

product to the impact it has when it is disposed of at the end of its life.

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Materials and

inputs

Manufacturing

Product Use End of Life

Basic Product Life Cycle

Let’s discuss how you would think about impacts across the life cycle.

Cradle Grave

The Manufacturing and Product Life Cycle

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Inputs and Procureme

nt

Pollution

Product End-of-Life

Disposal

Product Reuse

Recycling

Remanufacturing

Distribution

Retailing

Raw Materials

Product Design

Processing

Manufacturing

Consumer Use

Waste

Byproducts

Click o

n the g

reen

boxes f

or more

info

rmatio

n

Transportation and

Distribution

Manufacturing

Click on each of the topics to learn more

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EnergyMaterials and Waste

Packaging

Greenhouse Gases

Water

For each topic, you will learn:• Why it is an important sustainability

issue• Important terms and concepts• An introduction to approaching the issue• Typical opportunities for improvement• Examples from real companies• A checklist to help with implementation• Search terms for the Sustainable

Business Clearinghouse• Additional resources to help you

Air Quality

Click here to learn about common manufacturing

processes that often have environmental opportunities

Buildings and

Infrastructure

Basic Project Assessment Process

281Ohio EPA “Financial Analysis of Pollution Prevention Projects”2 NEWMOA “Improving Your Competitive Position: Strategic and Financial Assessment of Pollution Prevention Investments

Collect all relevant cost data to understand the

full costs1

• Identify cost generators• Detailed current costs by

process• Detailed costs after project• Proposed costs of

implementing the project

Analyze Projects using profitability measure

• Payback Period• Net Present Value (NPV)• Internal Rate of Return (IRR)

Prepare a justification package

• Make the case for your project• Provide supporting information

and data• Link the project to company

mission and goals• present the project to

company decision makers2

1 2 3

1: Types of Costs to Include in Analysis1

Direct or Visible

Hidden or Indirect

Contingent

Liability

Less Tangible Initial2

291 GEMI “Finding Cost-Effective Pollution Prevention Initiatives: Incorporating Environmental Costs Into Business Decision Making”2 NEWMOA “Improving Your Competitive Position: Strategic and Financial Assessment of Pollution Prevention Investments

Let’s take a look at each of these costs in more detail.

In order to understand how a project would affect your costs, you need to compare the full cost before and after the project.

Hidden Costs

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Types of Costs1

Cost Pool Description

Direct LaborWorkers involved directly in the production process

Direct MaterialsMaterials that are part of the product

Overhead  

Indirect LaborAny other work that's not production

Indirect Materials

Materials not in the finished product

Facility CostsFor the building, such as rent, heating, lighting

Corporate Expenses

Administration costs, including things like marketing and sales expenses

1 NEWMOA “Improving Your Competitive Position: Strategic and Financial Assessment of Pollution Prevention Investments

Costs included in Overhead aren’t

allocated to specific

processes or products or are

allocated using a generic proxy, so

they are “hidden”. It can, therefore, be difficult to determine the true costs of a

specific process or product.

Hidden Environmental Costs

• Many times, environmental costs should be allocated to a specific process, but aren’t because they are “hidden” in the overhead. In such cases, you could underestimate the costs or benefits of changing that process.

• Traditionally, company decision making processes have not taken into account all environmental costs or savings. This can lead to the rejection of sustainability projects that have merit.1

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• Monitoring and Reporting

• Waste Management and Disposal

• Capital Depreciation

• Employee Training

• Utilities (electricity

and water)

• Permits and Fees

• Equipment

• Fines and Penalties

• Equipment Cleaning

• Legal support1

• Sampling and Testing1

1 GEMI “Finding Cost-Effective Pollution Prevention Initiatives: Incorporating Environmental Costs Into Business Decision Making”2 NEWMOA “Improving Your Competitive Position: Strategic and Financial Assessment of Pollution Prevention Investments

Environmental Costs Typically Included in Overhead2

Utilities can be a major cost, but it can be hard to allocate your utilities costs to your different processes accurately. The next lesson will give you more advice on how to do this for specific

utilities.

$10,000

$4,500

$5,500

“Hidden” Costs Example1

• Imagine a facility with two processes, welding and surface coating.

• Only the surface coating process uses hazardous materials and produces hazardous waste.

• Overhead costs for resulting from the hazardous materials could be allocated to both processes using a proxy (such as labor hours), resulting in the costs shown in the red boxes.

• In reality, the surface coating process is really responsible for the costs, resulting in the cost allocation in the blue box.

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Hazardous Waste

Solid Waste

CoatingsSolventsEnergy

Air Emissions

Welding MaterialsEnergy

Welding

Surface Coating

1 NEWMOA “Improving Your Competitive Position: Strategic and Financial Assessment of Pollution Prevention Investments

Overhead Costs: $10,000

• Hazardous Material Training

• Labeling and Manifesting

• Waste Disposal• Permits and Fees• Protective Gear

Result: If you were considering a project to remove all hazardous materials from surface

coating, using this overhead allocation

would underestimate the true benefits of the

project.

More accurate

allocation

Process Costs Example• Here we see

some of the potential types of costs to be included when analyzing the change to the surface coating process.

• On the next slide, we will see how some of these costs would be quantified.

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Hazardous Waste

Solid Waste

CoatingsSolventsEnergy

Surface Coating

Direct or Visible Costs

• Materials like coatings and solvents• Labor• Wasted

materials

Initial Costs• Purchase of

new equipment• Installation• Training

Less Tangible Costs

• Employee health and safety from hazardous materials• Company

reputation• Productivity

increase from new process

Contingent Liability

• Risk of hazmat spill• Exposure to

workers

Hidden Costs• Cost of energy in

process• Compliance costs

(permitting, documentation, training, protective gear)• Waste

Management

Hypothetical Project Cost Example

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Cost Before Project

After Project

Incremental Change

Initial Costs(New Equipment acquisition, installation, training, etc.)

n/a$75,500

($75,500)

Operating Cash Flows (one year)

Before Project

After Project

Savings

Raw Materials (Change type of coating) $65,600 $46,800 $18,800

Solvents (No longer Needed) $12,500 $0 $12,500

Energy (New Process requires more energy)

$5,000 $8,500 ($3,500)

Hazardous Materials Management and WasteRemoval (No longer needed for this process)

$6,500 $0 $6,500

Other Costs $6,500 $2,800 $3,700

Total Operating Cash Flows $96,100 $58,100 $38,000

Adapted from: NEWMOA “Improving Your Competitive Position: Strategic and Financial Assessment of Pollution Prevention Investments, “Lean and Clean Value Stream Mapping,” Green Suppliers Network, and “The Lean and Environment Toolkit,” EPA.

*Tradeoffs: for this

project, many costs fall, but energy costs increase. You will need to decide if the tradeoffs are

worth undertaking.

Annual Savings

So we’ve identified an initial cost of $75,500 and annual savings of $38,000. In a few slides, we will use these numbers to conduct a project profitability

assessment to determine whether the project should be implemented.

Initial Cost

2: Project Profitability AssessmentThere are several common ways to assess the profitability of a

project.1 These methods will help you determine whether a proposed project will add economic value to the company.

Click on the boxes below to learn about each type of profitability assessment.

351 Ohio EPA “Financial Analysis of Pollution Prevention Projects”2 EnergyStar Building Manual Chapter 3 Investment Analysis

Payback PeriodInternal Rate of

Return (IRR)Net Present Value (NPV)

• These methods involve looking at the cash flow generated by your project. In the case of sustainability projects, this is usually through cost savings. The result is a single number that allows you to understand how profitable the project is.

• Your company may have a method that it typically applies when analyzing investments.2

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Net Present Value Example• The easiest way to calculate NPV is through

the use of a spreadsheet or calculator that can calculate NPV.1

• Going back to our surface coating example, let’s assume a cost of capital here of 10%, a project lifetime of 5 years, and constant annual savings.

1 NEWMOA “Improving Your Competitive Position: Strategic and Financial Assessment of Pollution Prevention Investments

Present Value1

= Future Value(1+r)T

r= discount rateT=number of periods in which interest is earned

NPV = Present Value of all Cash

Inflows - Present Value of Cash

Outflows

Year Cash Flow PV of Cash Flows

0($75,500)

($75,500)

1 $38,000 $34,546

2 $38,000 $31,403

3 $38,000 $28,549

4 $38,000 $25,954

5 $38,000 $23,594

$68,546

Positive NPV

Financing Environmental Investments

Once you’ve decided on a project, you may be able to finance it using retained earnings, but you may also need to look outside the company for financing. When considering financing for your project, it’s important to find the appropriate financing vehicle for your specific situation.1

You should consider things like the size of your company, the kind of project you need to fund, your cash flow, other financial considerations. It is important to start with a cash flow projection to help you determine whether you need to seek outside financing. It will also be required for any loan.2

Click on each of the types of financing for more information

371 NIST MEP “Quick Reference Guide to Growth Financing”2 Department of Energy “Financing Options, Techniques, and Strategies”

Federal or State

Assistance

Commercial Loans

Leasing/ Vendor

Financing

Tax Incentives

Equity and Venture Capital

Utility Incentives

and Rebates

Energy Service

Companies(ESCOs)

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• Toolkit and Sustainable Manufacturing 101 Modules can be found at www.trade.gov/green

• Contact information:– Morgan Barr, 202-482-3704,

morgan.barr@trade.gov – Bill McElnea, 202-482-2831 ,

bill.mcelnea@trade.gov